Prizes for Progress with a Caveat: DOE Offers $3 Million Incentive

Posted on February 15, 2018 by Irma S. Russell

The U.S. Department of Energy (DOE) recently announced a $3 million prize competition for solar energy manufacturing innovations.  The American Made Solar Prize, seeks to encourage innovation in solar manufacturing in the private sector.  Given the urgency of the threat of climate disruption, incentives for a green energy industry are definitely a good thing.  

In 2017 the U.S. Global Change Research Program Climate Science Special Report reported key findings, including stronger evidence of “rapid, human-caused warming of the global atmosphere and ocean,” and observable changes in the planet have made the scientific consensus about climate disruption clear as glaciers shrink, oceans and rivers warm, and coast lines recede.  A draft report by agencies such as NASA and the National Oceanic and Atmospheric Administration released late last year states that the world “has warmed by about 1.6 degrees Fahrenheit over the past 150 years and that human activity is the primary cause for that warming.”   It seems clear that rewards for innovation to combat climate disruption are worth the effort and worth the money if they produce progress in sustainable energy.  Despite such promise, however, DOE and community oversight groups should use caution in this new prize enterprise. 

Entrepreneurs have a played a dramatic role in historic energy discoveries of the past.  For example, the discovery and development of fossil fuel was driven by the private energy sector.  A recent example is the rocket launch by Elon Musk in February or 2018.  Likewise, DOE’s laboratories, university researchers and other energy researchers have a proven track record of progress in energy research.  Moreover, private investment seems posed to spur renewable energy technologies.  Venture capital investments needed to take ideas and turn them into marketplace reality seem likely to support private innovations, particularly when those innovations have the endorsement of the DOE. These factors suggest optimism about the result of this prize and others like it. 

So what’s the caution and why?  In an article forthcoming in the UMKC Law Review Green Economy Symposium later this spring, I survey current-day green economy sector jobs and other efforts to build markets to help encourage sustainable practices.  The article describes natural incentives to promote an all-hands-on-deck approach to addressing climate disruption and argues for the use of ex post rewards for innovations, like the award now offered by DOE.  Caution: it won’t work toward environmentally positive outcomes if, rather than creating incentives for real innovation, it is an excuse for a give-away. 

However, Concerns that ex ante rewards may confer unfair benefits to inventors turns a blind eye to the risks accompanying the failure to attract innovations to solve the global climate problem and other environmental problems.  Government support should encourage the progress that a modern-day Edison, Tesla or Jonas Salk might make with true break-through advances.  In such cases, governments should mobilize to support inventions even when the government did not foresee such developments.

The possibility that the reward program will advance new and robust solar energy manufacturing innovations makes it worth pursuing.  The risk, however, that the program will fail to advance the science of solar energy is real. It is again that some wasted funding is likely.  And distinguishing between an incentive for innovation and a reward for being part of the energy structure can be difficult.   For example, last year Secretary of Energy Rick Perry announced payments to nuclear and coal companies for their status as sources of power based on the rationale that such payments serve as insurance against a compromise of the energy grid in the future.  The plan did not include payments to renewable energy companies, however, causing some to speculate that the payments had a political purpose rather than the stated purpose of insuring an uninterrupted energy supply. 

The answer to whether the DOE program is worth pursuing hinges not on the ultimate result but on the good faith nature of the incentive and the effectiveness of the efforts of those monitoring the implementation of the reward.    The use of government incentives, including prizes, presents a potentially fertile avenue for progress.  While risks exist, the possibility of progress is alluring.  So long as the rewards serve to stimulate new ideas rather than simply rewarding existing players to continue business as usual, the expenditures are justifiable and, ultimately, justified because of the possibility of new.   Discovering innovation that moves the country toward a carbon-neutral economy is a goal worth funding – even when the success of such research is not assured.  In fact, this is the nature of research itself.